Retailers Following Clients Into Niches

The world of computer retailing is in a state of transition. In a couple years, many-perhaps most-computer stores will have changed methods and even location, industry experts said.

But they probably still will be around, because the changes have nothing to do with the recession.

No, instead of the R-word, retailers are worried about the S-word:

segmentation. Computer buyers are dividing into two or three camps, and a retailer who doesn`t fall into one of the camps will be very alone.

``I`ve been in business for eight years, and every other year I`m told that computer stores are going out of business,`` said Dick Danstrom, president of the three-location Chicago Metropolitan Computerland. ``But the economic situation is hurrying the polarization of the market between the value-added dealers, called VADs, and the box-pushers.``

On one hand, there are those who offer specialized service to a specific market (Danstrom targets banks, for example), operating from small, hidden-away offices and depending on outside salespeople and telemarketing, not walk-in business. On the other hand, there are those who try to sell everything to everybody cheaply from the shelves of 20,000-square-foot establishments resembling department stores.

Caught in the middle is the traditional street-corner, 2,000-square-foot storefront computer retail store, with salespeople standing around to offer personal attention and tailored systems to whoever walks in.

``The retail channels are changing because the profit structures of the last generation of companies in this industry don`t work anymore,`` said Nathan Morton, president of Dallas-based Soft Warehouse. ``The market is moving into two camps-high volume and specific vertical markets. The middle will be dangerous ground.``

Not surprisingly, some of the traditional stores are scrambling to join one camp or another. Businessland Inc., a chain in San Jose, Calif., closed all its storefront operations at the end of 1990. But the chain still is doing business from 74 locations, all ``business centers`` in industrial office parks.

Inacomp Computer Centers, a 310-store chain headquartered in Troy, Mich., which has five stores in the Chicago area, is following a similar strategy.

``We closed a store on Michigan Avenue that catered to retail traffic and moved it to an upstairs location in another building,`` said Rick Inatome, president of Inacomp. ``Others of ours have moved to industrial parks or have become superstores in malls.``

In addition to the ``superstore`` or specialized-service store, Inatome identified a third segment being addressed by new computer retailers: the

``home office or independent technical user.``

The ``superstore`` concept is the newest facet of the segmentation, involving large warehouse-like operations offering discount prices to the people who previously would have shopped mail-order. The example most commonly cited is Soft Warehouse, with 17 stores nationally, two in the Chicago area.

``Ours is actually three businesses: retail, corporate and service,``

said Morton. Each strives for low prices, a large selection (5,000 items) and enough inventory for corporate customers, he said. Customers pay for as much service as they want, he added.

The keys to the changes in the industry are changes in the products and in the customers.

``The newer high-end systems and networks are more complicated and place higher demands on the traditional reseller, who consequently can`t support them except at high cost,`` said Dan Ness, industry analyst at Computer Intelligence, a market research firm in San Diego.

``At the high-volume end, the clone vendors have taken hold because the buyers have gotten more sophisticated. All in all, it leaves the small, independent dealer out in the cold,`` Ness said.

``What`s driving the PC market is incredible competition stemming from the fact that the PC has become a commodity item,`` said Paul Zagaeski, analyst at the Yankee Group, a market research firm in Boston. ``Even PCs produced by smaller firms will have the qualities and features of ones produced by bigger firms.

``Profit margins are only 12 to 18 percent,`` Zagaeski added. ``So you either slash prices to the bone and try to make up for it in volume, or add a bunch of services on top of the hardware. The move away from specialty stores to superstores, meanwhile, is very similar to the upheaval that consumer electronics went through four years ago.``

Traditional stores, however, may not all be doomed.

``Half of our database of 4,000 computer stores are located outside the 50 major metropolitan areas, where the stores are often the only game in town,`` said JoeAnn Stahel, president of StoreBoard, a PC market-tracking service in Dallas. ``Anybody who ignores those people has rocks in (his) head. ``But people in the big towns are in trouble now, and we have begun to see changes and consolidations since mid-1990.``